Maine Rubber International v. Environmental Management Group

United States District Court · Contracts

ContractsConsequential damagesForeseeabilityLost profitsReliance damagescontract damagesconsequential damagesspecial damages

Facts

Maine Rubber hired EMG to perform a Phase I Environmental Site Assessment on property Maine Rubber planned to buy and use for relocating its tire manufacturing business. EMG's report came up clean, and Maine Rubber waived the environmental condition in its purchase and sale contract. More than six months later, federal and state environmental authorities found hazards on the property, causing Maine Rubber to terminate the purchase and make an expedited move to another location instead of the phased move it had planned. Maine Rubber sought both lost profits and reimbursement for expenditures it had paid to third parties in preparation for the aborted move.

Issue

Whether the evidence was legally sufficient to support the jury's awards of lost profits and out-of-pocket reliance expenditures as damages for EMG's breach of the environmental assessment contract. More specifically, the question was whether those damages were reasonably foreseeable at the time of contracting and whether the reliance expenditures were speculative or unsupported by causation.

Rule

Under Maine law, special or consequential damages such as lost profits or reliance expenditures are generally not recoverable unless, at the time the contract was formed, they were or should have been reasonably foreseeable or contemplated by both parties as a probable result of breach. Lost profits are not recoverable absent evidence that the parties contemplated them at contract formation or that such profits would generally be expected from this type of breach. Reliance expenditures are recoverable when they are actual, non-speculative costs whose loss was reasonably foreseeable and the evidence permits a finding that the breach caused those expenditures to become valueless.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Summit Alloy Works, a manufacturer in Toledo, hired Great Lakes Site Review, a small consulting firm, for $2,400 to perform an environmental screening of a warehouse property in Akron that Summit was considering buying. Summit told the consultant only that it wanted the property for manufacturing operations; after contamination was discovered months later, Summit abandoned the deal and sued for the profits it claimed it would have earned from increased production at the Akron site.

Are Summit's lost profits most likely recoverable for breach of the environmental-screening contract?

Explanation. Special or consequential damages are recoverable only if, when the contract was made, they were or should have been reasonably foreseeable or contemplated by both parties as a probable result of breach. For lost profits, mere awareness that a business is considering a property for operations is not enough. Without evidence that the parties discussed expected profits or other facts showing lost profits were contemplated, or that such profits ordinarily result from this kind of breach, the profits are not recoverable. (Derived from Maine Rubber International v. Environmental Management Group (n.d.).)